Credit Suisse’s disastrous dealings with collapsed hedge fund firm Archegos Capital Management are worse than was initially feared. The Swiss bank had already booked a 4.3 billion francs charge in the first quarter of the year as a result of its trades with Bill Huang’s hedge fund.
Now, it is saying that it hasn’t finished unwinding these trades and is forecasting further headwinds of 600 million francs.
Chief Executive Thomas Gottstein is on record as saying that the losses from its New York brokerage were unacceptable. He also said that a lack of clarity from Archegos had been at the root of the problem.
Speaking to reporters, Gottstein said that – “It’s clear that a family office like that did not disclose positions like a normal hedge fund would do. We will also learn from the regulators how other firms had managed.”
JP Morgan has raised its forecast for the losses to the banking sector as a whole to $10 billion. Credit Suisse is expected to bear the brunt of this, with rival banks including Morgan Stanley and Nomura’s losses expected to be a fraction of the Swiss banking giant’s.
David Mathers, the chief financial officer of Credit Suisse, told analysts that “It is an exceptional event. I think the last time the industry has seen anything like this was the Long-Term Capital Management collapse in terms of its size and consequence.”
Before the additional sums were announced the Credit Suisse losses had already pushed the group 757 million francs. At one fell swoop, the transactions had wiped out over five years of profit from the group’s investment banking division.
As the scandal continued, Credit Suisse’s shares plummeted 4.5% at the opening of the Zurich stock exchange on Thursday. This is despite an otherwise strong performance in the first quarter from the investment banking arm, which was led by a rise in underwriting.
It is expected that the prime brokerage activities behind the Archegos fiasco will shrink by at least a third this year as the bank switches all its focus to its most important clients, many of whom have large overlaps across much of the Swiss lender’s operations.
According to Gottstein, the prime services were never an important or attractive part of the business, stating that – “It is definitely not a business per se that we ever felt was extremely high returning.”
Credit Suisse is not ruling out further charges to its income statement either. And to add to its woes, the Swiss financial watchdog FINMA has already opened enforcement proceedings against the bank in the wake of its losses and role in the Archegos, and to a lesser extent, Greensill collapses.
Asked about his own future at the company, Gottstein said that he has vowed to stay on to right the ship along with the new chairman of the board, Antonio Horta-Osorio, who takes up his new role next month.